The Truth About “Sell In May and Go Away”

Most of us must have probably heard of this phrase before. But some may not know how it came to be, or perhaps more importantly, if it’s actually true.

What Does it Mean to Sell in May and Go Away?

The phrase, sometimes also known as the “Halloween Indicator”, refers to an investment strategy based on seasonality.

By acting on it, an investor will sell all, or most of their stock portfolio in May and buy them back a few months later to avoid the summer months, which are usually more volatile.

Some studies in the past have showed that the strategy worked to some extent and that returns by those who use it may have been higher. With that said, these results were not conclusive and there remain both supporters and critics.

How Did The Saying Originate?

In order to know more about the saying, it’s best to go back and look at its history. The phrase originated in Europe over a century ago and the longer version was “Sell in May and go away, do not return until St. Ledger’s Day.”

To give you a bit more insight, May was the month summer started in England and because of this, investors and stock brokers would often leave for vacation and not return home until September.

St. Ledger’s Day was usually near the end of horse racing season. As one of the more popular sports among those who had money to buy stocks, trading was also flat from May until September because investors and brokers did not go back to work until racing season ended.

During this period of time, it was a legitimate reason for a weak performance in the markets. But we now live in a globalized world where brokerages stay open and investors don’t take their entire summers off!

What Do The Numbers Say?

The fact that the history of the phrase is not in line with how the world works today does not necessarily mean that it’s wrong, so it’s worth taking a look at how the “Sell in May and Go Away” strategy has performed over the past 15 years.

Let’s assume there are two people: Investor A and Investor B. Investor A buys the S&P 500 index at the beginning of the year, holds onto it during the entire year and sells it at the end of the year.

Investor B buys the S&P 500 at the beginning of the year, sells everything on the last trading day of May, buys again on the first trading day of November, and sells again on the last trading day of December.

In this scenario, and calculating returns over 15 years from 1998 to 2012, Investor A would have suffered an 8% loss while Investor B would have gained 33.6% during this time!

With all of that said, it’s worth considering that the Early 2000s Recession, as well as the financial crisis of 2008-2009 both had their worst months between June and October and that it’s hard to find conclusive evidence from just 15 years’ worth of data.

However, it’s still worth investigating more. There may be some truth to “Sell in May and Go Away” after all.

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.